Silicon Valley is Weird… Absurdly Weird.

I lived in Silicon Valley for around 6 years. I say “around” because, as a New Englander, it’s hard to keep track of time in a place that doesn’t have seasons. My wife and I often talk in terms of, “That April when we got two feet of snow” or “that summer when it rained every weekend.”

Sorry, I got a little off-track there. Discussing weather in Silicon Valley is a whole other topic. There are microclimates and even sub-microclimates as I read that article. None of this related to money, but I find this stuff interesting.

What I really wanted to highlight today is a video.

Before we get to that video, I want to tell you that I personally feel the message of the video and it’s a large reason why I moved back to New England. Financially, I covered some of our reasons for moving in this article back in 2012: Financial Analysis of Moving From San Francisco to Boston.

This video is actually “old news” from October of 2015, but things haven’t changed… and they won’t likely change for a long time. If anything they’ve only gotten more exasperated.

If you haven’t watched the video above, you should. It isn’t short, but I’ll think you’ll get more value out of than a Friends or Seinfeld rerun (not that there’s anything wrong with those!)

And if that isn’t enough emphasis in watching the video, think about the last time you been to an open house with a barista. I’m guessing it was, ummm, never.

One of my favorite parts of the video was the mention of the house being listed at 1.888 million. The “888” lucky number in Chinese culture is why I wrote “nearly 900K” in this article.

I can’t help but point out the information at the 4:30 mark. A small condo, with asbestos concerns, that has highway noise concerns, is listed for a shade under a million dollars… and that was the “teaser” price to lure a bidding competition.

That’s a lot to chew on. It’s easy to say, “Hey it’s supply and demand… and there’s a housing shortage.”

It is supply and demand, but the video points out that there’s no housing shortage. Many of the houses are empty, bought by overseas investors… and they don’t want the “hassle” of renting them out at $4000 a month.

Can you imagine a world where the investor doesn’t want to collect nearly $50,000 a year? I can’t.

I’m reminded of a conversation I had with a co-worker back in 2006. He said I should buy a house instead of renting. I thought it was the most ridiculous thing I’ve heard considering Housing Prices in California? Hold your hat! and Survivor Winner Can Buy a Starter Home. As a side note to the last link it’s fun to read in biography “joined the business strategy group at Internet search firm Google.” In 2006, Google was characterized as an “Internet search firm.” That’s an accurate description, but I think you’d sound like an alien using those words today.

I greatly agree with much of the video, but around the 19 minute mark, I need to disagree. I don’t believe that the extremely high prices in one region prohibits people from having “a place to live.” It’s not like the people in Silicon Valley have no other options.

In fact, around 80 miles away there are people almost begging to sell their houses. Remember the millions that was highlighted above? Here’s a great quote from that article of people further away, “His home now is worth about half the $126,000 he paid for it.” I’m going to use my exceptional math skills to estimate the home value at around $63,000.

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Comments

Having grown up here and also having been lucky to have purchased a home back in 2008 when the bubble last burst, but also realizing how ridiculous it has gotten, I kind of can’t stand what that realtor said at 21:30. There is no “right” to live here. I know many friends who work at Google and Apple and there is no “right”, it’s pure luck. If you were lucky to have bought in the down market, or if you were lucky to have had stock that shot up at the right time, maybe then you could possibly buy a place here in Silicon Valley. I am now renting my home out for a crazy amount that I would never have dreamed of when we first purchased our home because it is close to freeways (yet still about a 16 mile/30 min in-traffic drive to those tech companies) so as far as investment goes, it did work out for us as we net about a $600 a month after expenses. Now the question is whether it is wise to sell the place. Even though it might have doubled its value since 2008, we also know that if we sold at even $1M (it is a 3/2 SFH 1700sf on a crazy busy street but in a nice neighborhood), even if we got that, we could not buy again… probably ever to get anything close to that size in a better area. The real estate rises in waves together. My brother is sold his townhome for a gain of $280k and thought he could definitely find his dream home for $1M (which was in their eyes a heck of a budget) but to their demise, in the last month, found out they had to settle on only meeting 2 out of 6 of their must-haves list and they had to go $10k over what they intended to spend.

All this to say, there is no “right” and it has gotten ridiculous. Renting seems ridiculous as well and as much as I would love to give a more affordable price that makes sense to me, it is also already a little below market rate. As for your co-worker saying you should have bought back then, I actually agree because in hind sight it was when places were more affordable, but for now, I completely understand why people who were not so lucky to have everything line up in their favor, why those people decide to leave the Bay Area. I know of several who have relocated to places like Seattle (which I hear is now becoming like a Silicon Valley as well) just to afford a life they thought might be able to provide for their families when moving to Silicon Valley.

It’s a tough topic especially around Silicon Valley for sure. Thanks for bringing it up. Oh and from what I hear, the Chinese investors pricing people out, I think that is dying down, either because the China stock market took a hit or because those that would have bought have already done so by now, but that’s just what I hear from some.

Renting and roommates are how single people get by. Single people move here, families move away.

No side is right. You can’t say the owner doesn’t have the right to raise rent and nor that the tenant has the right to live there indefinitely. It’s just how it works with supply and demand. If anything the issue is that they artificially limit housing supply without central planning – it is a series of cities and counties, not one jurisdiction. Each city is happy to bring in thousands of jobs, but won’t build housing for those jobs.

While I don’t think anyone has an inherent right to live in any particular place, I do see that massive inequalities that it perpetuates and I’m not sure that’s a healthy ecosystem to exist in.
Aside from social unrest, I think it’s detrimental to society as a whole if the economic divisions between the rich and poor resemble the Grand Canyon. That’s a lot of innovation and creativity and productivity that we lose along the way. There are a lot of good minds out that just need a less stacked system to be a valuable contributor to society.

I was one of them. PiC and I make good money, we’re wise with what we earn, I invest and invest some more. And we’re still limited to a very narrow slice of possible real estate because everything is so expensive here.

We make do but me from ten years ago? I doubt I could have made good on all that debt and grown my net worth like I did back then, in an environment like this.

If anything, though I’m not a fan of regulating everything, I’d argue that just leaving everything to supply and demand or market forces will prove to be detrimental overall. But I suppose that’s because I’m still middle class and still relate to the poor.

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